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Ford’s Options Worth Over $100M

MILAN — Tom Ford’s contribution to Gucci Group hasn’t gone unnoticed.<br><br>Paperwork filed with the Securities and Exchange Commission revealed that Ford, who now holds the title of vice chairman of the luxury powerhouse, holds...

MILAN — Tom Ford’s contribution to Gucci Group hasn’t gone unnoticed.

Paperwork filed with the Securities and Exchange Commission revealed that Ford, who now holds the title of vice chairman of the luxury powerhouse, holds stock options that could generate well over $100 million in cold, hard cash.

According to Gucci Group’s Form 20-F, a legal and financial document recently filed with the SEC, the executive/designer held exercisable options for 1.6 million shares, or 1.6 percent of Gucci’s outstanding capital. That’s more than any other Gucci manager, including chief executive Domenico De Sole.

If Ford were to cash in at current stock prices, he would net about $140.3 million. If he waits until 2004 when majority shareholder Pinault-Printemps-Redoute must launch an offer for all Gucci shares at $101.50, he would pocket a cool $162.4 million. A Gucci spokesman specified that Ford could own even more stock options on which exercise rights haven’t yet been triggered. The amounts cited don’t include previously exercised options.

The 20-F did not provide a breakdown of other Gucci managers’ options, but the document did state that each of the eight members of Gucci’s supervisory board and the 12 members of the management committee, including De Sole, hold less than 1 percent of company equity through stock options.

Elsewhere, the document stated that Ford’s contract expires in June 2004, while De Sole’s expires in January 2005. Gucci said it plans to discuss extending both contracts this year.

A few months ago, Gucci appointed Ford as vice chairman of the management board alongside De Sole and Aart Cooiman. That move, engineered to recognize Ford’s critical role in the commercial success of Gucci, prompted some in the industry to speculate that Ford is being groomed to one day take the reins from De Sole.

Gucci underlined the importance of the De Sole-Ford team in its list of risk factors shareholders should consider carefully along side the adverse affects of a macroeconomic downturn and the damage done by counterfeiting luxury goods products.

“The company’s success depends to a significant degree upon the efforts and abilities of certain members of senior management, including Domenico De Sole…and Tom Ford,” the document said. “The loss of the services of Mr. De Sole, Mr. Ford or one or more other members of the company’s senior management or design team…could have a material adverse effect on the company’s business, financial condition and results of operations.”

But even though Gucci touts the importance of the De Sole-Ford duo, it is mum on their salaries.

The annual report glossed over management compensation, stating that members of the supervisory and management boards, a total of 10 people, received salaries totaling $5.3 million. That comes to $530,000 a head if the figure were divided equally, although such a breakdown is unlikely.

The tome’s pages, along with those of Gucci’s annual report, also offer plenty of salient details on the growth strategy of this multibrand powerhouse. Among the highlights: Gucci is cautious on acquisitions, but it is still spending big on stores.

The 20-F reveals some of Gucci’s plans for its cash pile, which stood at $2.56 billion as of Jan. 31. Gucci said it may consider buying strategic assets like real estate, suppliers or franchise businesses as well as “selective acquisitions of luxury companies.” Other options include buying back shares or distributing special dividends, the company noted.

But Gucci hinted that it doesn’t plan to use the cash to pay down its debt, which totaled $1.37 billion as of Jan. 31. Gucci said it wants to maintain a certain level of debt and keep credit lines open in case it opts to make acquisitions.

Meanwhile, Gucci is planning to spend. Capital expenditures in 2002 should total at least $290.8 million with about two-thirds of that going toward the opening, expansion and refurbishment of stores in markets such as Europe, the U.S., Japan and Asia. Dollar figures in this story referring to 2002 forecasts have been converted from the euro at current exchange rates; other monetary amounts were reported in dollars.

Gucci said it plans to invest “elevated levels” on stores in 2003, mostly for Yves Saint Laurent and its other smaller brands, but capital expenditure for fixed assets should decline in coming years as key stores for each brand are opened.

In the first quarter of 2002, Gucci already spent $61 million on capital expenditures. The largest chunk of that total, $25.5 million, went toward “other operations,” an umbrella category for all of Gucci’s acquired brands except Yves Saint Laurent. This basket includes Boucheron, Bottega Veneta, Sergio Rossi, Balenciaga, Stella McCartney and Alexander McQueen.

But Gucci is still focusing plenty of attention on its core brand. As reported, Gucci unveiled this month a new 7,000-square-foot store on the corner of Madison Avenue and 69th Street in New York. Ford and interior architect Bill Sofield are refurbishing the Milan and Paris flagships in the same wood-accented styles.

Returning to 2001 investments, Gucci said advertising and communications expenses for its core Gucci brand came to $89.2 million, while those for Yves Saint Laurent came to $29 million and those for YSL Beauté rang in at $101.3 million.

The documents also provide the sums Gucci spent on acquisitions during 2001 and the first quarter of 2002, noteworthy because Gucci often does not disclose the price of individual acquisitions.

Last year, Gucci agreed to pay $219.1 million, of which $196.2 million was paid in 2001, for stakes in Bottega Veneta, Stella McCartney, Alexander McQueen, Balenciaga, watch group Di Modolo as well as several leather and footwear companies. It also bought the 35 percent it didn’t already own of the company that runs its stores in Australia.

In the first quarter of 2002, Gucci spent $22 million to buy a series of manufacturing companies specializing in footwear and jewelry and a minority stake in distribution affiliate Gucci Taiwan Ltd.

“Management considers an acquisition of a luxury brand on the basis of price, the value and potential of the trademark, the tradition and history of the brand, the quality of the individual[s] associated with the brand and the ability of the Gucci Group through its management and infrastructure to increase the value of the acquired businesses,” the company stated in its annual report.